3Com Spin-off Turns Rival

By eweek |
Posted 2001-01-08

The latest episode in the 3Com and U.S. Robotics story might play out like something from a PBS television nature special: The offspring grows up and attacks its parent in a vicious fight for territory.

Just four months after it officially spun off from 3Com, U.S. Robotics is moving aggressively to compete with its former parents highest-growth consumer product lines. U.S. Robotics this year plans to fan out its products into wireless networking gear and cable and Digital Subscriber Line (DSL) modems, and it has other home networking products in the works.

3Com kicked U.S. Robotics out in March 2000, in an effort to improve its balance sheet. It wanted to drop the low-growth, low-margin analog modem business, a product group it had obtained  ironically  through the acquisition of U.S. Robotics in 1997. It seemed like a reasonable move at the time. Investors cried that 3Coms legacy modem business was so much dead weight dragging down its earnings and growth potential. So 3Com cut the ballast, creating a new modem company as a joint venture with two Asian manufacturing concerns, Accton Technology and NatSteel Electronics.

But in resurrecting an independent U.S. Robotics, 3Com appears to have planted the seeds of a strong competitor in the consumer Internet connectivity market. Some observers believe U.S. Robotics, which has a well-known brand name for its analog modems, will be a formidable foe of 3Com, which remains spread across carrier, consumer, and small- and midsized-business markets.

The child is rapidly encroaching on 3Coms play for the "digital home." At the International Consumer Electronics Show, U.S. Robotics was expected to demonstrate a suite of wireless home networking gear that it plans to ship by the end of March. The products, based on the widely supported Wi-Fi specification, include a $149 PC card adapter and a $399 wireless access point.

The company also announced a deal with Broadcom, a silicon components supplier, to develop cable modems and future home networking products. U.S. Robotics has secured a similar deal with chipmaker GlobeSpan to develop standards-based Asymmetric DSL modem and routers for home users; U.S. Robotics plans to ship its first broadband products early in the second quarter.

3Com, like U.S. Robotics, wants to be the leading supplier of gear that connects consumers to the Internet. Broadband and wireless networking are two of the most important growth areas for 3Com, which has struggled to refocus itself after last years major restructuring. 3Com rolled out two of its own home gateways last week at the Consumer Electronics Show: a new four-port Ethernet gateway for $159, and a wireless Wi-Fi-compatible gateway priced at $399.

At least publicly, both 3Com and U.S. Robotics downplay the extent of their competition. The two companies remain loosely linked at a corporate level: 3Com holds a minority stake of less than 20 percent in U.S. Robotics, which has a licensing agreement for 3Coms analog modem patents.

Julie Shimer, vice president and general manager at 3Coms residential connectivity group, said 3Com knew it would butt heads with its progeny in the broadband Internet access space someday. "We did realize, certainly, that there would be a potential for a competitive threat, if you like," Shimer said. "Over time, our intention is to be collaborative [with U.S. Robotics], so where they can support our objectives, well work together."

Shimer added, though, that 3Com "limited the amount of broadband [intellectual property]" it gave to the newly created U.S. Robotics. "They had to go out and obtain that themselves," she said.

U.S. Robotics executives said they didnt seek to deliberately compete head-on with 3Com. Rather, broadband and home networking product families represent a natural evolution from its core modem business, said Van Andrews, U.S. Robotics chief executive. "We think this is very important to our future," he said.